System of public budgests in CR

• the state budget + extrabudgetary state funds = centralized

• municipality budgets (counties, towns)

Distribute more than 40 % of HDPBased on allocation and stabilization function

(problem – Keynes theory is misused)

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The Budget system -Legal Framework

The budget process of the central government (the state budget and extra-budgetary state funds) is set by the Act on Budgetary Rules in addition to the special acts on extra-budgetary state funds.

Extra-budgetary state funds (only examples, together 16 bodies)• State Agricultural Intervention Fund, • State Cultural Fund,• State Fund for the Support and Development of the Czech Cinematography, • State Fund of Transport Infrastructure,• State Environmental Fund, • State Fund for Housing Development,• Estate Fund of the Czech Republic• Pension and Health fund, Czech Export bank…

The budgetary process

• is a complex of decisions taken by various subjects, which results in resource allocation in the public sector.

• As the public budgets in the Czech Republic distribute about 44% of the GDP it is worth studying who, how and when makes the decisions crucial for the final use of the public money.

Political context

• The Czech Constitution establishes a parliamentary Republic. The President (prof Vaclav Klaus) is Head of State with largely symbolic powers and WAS elected by the Parliament (next time – by inhabitants).

• The Czech Parliament is composed of– the Chamber of Deputies (200 seats, proportional,

4years) and– the Senate (81, majority, 6 years).

The budgetary process is composed of two mutually connected cycles:

• the multi-annual planning (n+1,2) and• the annual budgeting (is based on the approved

multi-annual expenditure framework). • The Chamber of Deputies approves in December (t-1)

the state budget for the year (t) (if not, the state budget law for t-1 is used for t)and the multi-annual expenditure framework for the years (t+1) and (t+2).

• The multi-annual expenditure framework contains the total expenditures of the state budget and the extra budgetary funds for the years (t+1) and (t+2).

Process…• Ministry of finance prepares the agenda for government (January/February

(t))

• In April (t) the government discusses the budget policy for the year (t+1) and sets the limit for the total expenditures, which is equal to the amount approved in the multi-annual expenditure framework after some allowed modifications.

• At the same time the government discusses the multi-annual outlook (framework, but in more detail, + revenues), which is the multi-annual expenditure framework elaborated for each spending ministry and each extra budgetary fund for the years (t+1) and (t+2). The multi-annual outlook is in contrary to the multi-annual expenditure framework not approved by the Chamber of Deputies and is therefore not binding.

2010 2011 2012 2013 Fiscal y.

Ministry Chamber Execution Control 2012

Ministry Chamber Execution Control 2011

• Budgetary process in the Czech Republic is a traditional budgetary process, as characterized by Wildavsky (1997).

• It is incremental, line item budgeting which focuses only on inputs. The government declared (8 years ago sic!, 2004) in its public budgets reform the will to introduce performance oriented budgeting.

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The Schedule of the Budget Process – more about frameworks

• The schedule of the budget process starts in February and finishes at the end of the year and is obligatory according to the Act on Budgetary Rules.

• The state budget act and medium-term expenditure frameworks for years n, n+1,n+2 as well as the limits of expenditures and revenues for the chapters` (e.g.line ministries ) budgets are approved annually.

• The draft state budget, medium- term expenditure frameworks and limits of expenditures and revenues (outlook) for the chapters` budgets are drawn up by the Ministry of Finance followed by the approval of the government and the House of Deputies.

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Medium-term expenditure frameworks

• The medium-term expenditure frameworks for years n, n+1, n+2 were included into the Act on Budgetary Rules in connection with the decreasing of the general government deficit and fulfilment of the commitments towards the EU.

• The medium-term (only) expenditure frameworks involve state budget expenditures, extra-budgetary state funds.

• Public sector revenue forecasts are not reliable for n+2

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The Budget Process

The budget process has four main phases:• Formulation of the draft state budget (for n+1) and

medium- term expenditure frameworks for years n+1, n+2 by the Ministry of Finance

• Government`s approval• Parliamentary scrutiny• Implementation

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Two Fiscal Statistical Systems

There are two fiscal statistical systems monitoring the general government/ public budgets from the different points of view:

• The European System of National and Regional Accounts ESA 95 (accrual-based)

• Government Finance Statistic (GFS - National Methodology –Fiscal Targeting) (cash-based)

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Comparison I

• The (GFS) Fiscal Targeting includes just so-called public budgets involving the central, regional and municipal governments as well as regional councils of cohesion regions (not funds…).

• The ESA 95 covers the entire Government sector, in other words, public health insurance companies, government agencies, subsidiaries, funds, state universities and other set allowance organizations.

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Comparison II

• In accrual system (ESA 95), recognition occurs with the exchange of liabilities and /or assets, which is usually before the cash flow and closer to actual economic impact of the transaction.

• In contrast, the cash basis (Fiscal Targeting ), which is used in most traditional budget systems, records outlays and receipts only when they involve cash transactions.